Collecting tax from the wealthy is not as straightforward as it sounds.

 I refer to Debra Satz’s review of Peter S. Goodman’s “Davos Man” “Democracy is under threat. Are billionaires to blame?” Outlook, Washington Post, March 6. 

It states: “Economists Emmanuel Saez and Gabriel Zucman estimate that at marginal tax rate of 10 percent for wealth over $1 billion would have raised $250 billion from the richest Americans in 2018”.

That could help feed a false illusion about how to resolve problems which of course should bother all of us, such as excessive inequalities.

BUT, all the wealth of the wealthy is stored in assets that have either been valued higher by other people’s money or, for which the wealthy when buying these, returned to the economy their money. So, this tax would require to collect $250 billion from the not-so wealthy, by having them buy the wealthy’s assets. 

What the implications of that would be is hard for me to estimate, but they should neither be ignored or underestimated. 

For a starter, what would the buyers otherwise had done with their money? 

Are we sure bureaucrats know better how to use it? 

What will become of yacht builders and yacht crews, if the yachts are the high-profile assets all wealthy decide to sell?

If someone sells a tractor to pay a wealth tax, who buys it?

Sir, Diego Laje and Anthony Faiola report that Gabriel de Raedemaeker, a land-rich farmer in Argentina, says he doesn’t have the cash flow to absorb an increased tax burden, and might need to sell a tractor to cover the cost. “Argentina sends its bill for pandemic to the rich” Washington Post, February 23, 2021.

A follow up to that could lead to a long never-ending sequel of articles. Who will de Raedemaeker sell the tractor to? What will the buyer do with it? Produce more or less than de Raedemaeker? And if the buyer had not bought the tractor, what else could he have done with his money? And so, on and on and on!

I’ve always thought that it would be great to read a book that followed the money trail left by Louis XX commissioning in 1500 Leonardo da Vinci to paint Salvator Mundi; and how it flowed through the years, perhaps to a Bill Gates, and in the process generating so much wealth that someone in 2017 decided to freeze $450.3 millions of purchase power on a wall with that painting.

But even if Raedemaeker had the cash, unless it was stashed away under his mattress, that does not either mean it was doing nothing. It might be deposited in a bank that used it to finance the purchase another tractor, that could be extracting even more wealth from the so fertile western Pampas of Argentina.

@PerKurowski

Redistributing wealth is not as straightforward as redistribution profiteers want us to think.

I posted a thread with 8 tweets 

Louis XII could be the filthy rich who gave up main-street purchase power to commission Leonardo da Vinci to paint Salvator Mundi. 500 years later another filthy rich freezes $450 million of his own purchase capacity, hanging that painting on a wall. Bad or great? 

Why are just the "filthy rich", like Louis XII and the buyer of Leonardo da Vinci’s Salvator Mundi cursed? Why not Leonardo da Vinci, or the current vendor of Salvator Mundi? Could they‘ve not just as well used money they got from filthy rich for something “more worthwhile”?

Does it all boil down to that Louis XII should not have commissioned Leonardo da Vinci’s Salvator Mundi and instead have bought food for the poor? I guess that would then depend on what the food suppliers did with that money, grow more food or drink more gin. Life isn’t easy

We can just pray that something of that main-street-purchasing-power comes into the hands of the few risk-taking entrepreneurs who, with luck, help catapult our world forward. Sadly, with risk weighted capital requirements for banks, regulators have made that less possible.

Yes, life isn’t easy. So let us all beware of all those redistribution profiteers out to make money or gain political power and who tell us “Let us just redistribute the wealth of the filthy rich, and you will all live in Nirvana. Venezuela, Nirvana? My …!!!

If Louis XX commissioned Leonardo da Vinci to paint Salvator Mundi, would it not make a beautiful novel to trace how that money flowed, perhaps to a Bill Gates, generating wealth so that someone could freeze $450 million on a wall, and keep the human development ball rolling? 

 

These ramblings about how the “filthy rich” convert their main-street-purchasing-power into assets and services, some that would never have existed without them started when seeing a totally useless shield in the Louvre in Paris.

Just in case, this is not a point blank defense of the “filthy rich”. It refers strictly to how their purchase power morphs into assets and services. Many “filthy rich” do become so in unjust and corrupt ways, quite often highly detrimental to development.

PS. A tweet: "A tax on wealth? Ok! But please, what assets should the wealthy sell to whom, in order to raise the money to pay it? And what would the buyers otherwise have done with the money they also must raise? And so on, and on, in the circle of the economy’s life."

PS. A tweet: "A conundrum. How to structure a tax on wealth without reducing the wealth that is taxed?"

PS. This of course does not mean that I am not in favor of reducing inequality. For that I strongly believe in the need for an unconditional universal basic income, a Societal Dividend

PS. When it comes to wealth, yachts are often depicted… but rarely do we see any interest in what those yacht-builders did with the money they received.

PS. Let’s hope taxpayers will not be surprised finding out they now have to pick up huge bills for maintaining some Russian oligarchs confiscated super yachts.

PS. Legend holds that when 1974’s Carnation Revolution’s, chief strategist Otelo Saraiva de Carvalho told Sweden’s Olof Palme in Lisbon: “In Portugal we want to get rid of the rich”, Palme replied, “how curious, in Sweden we only aspire to get rid of the poor”

Before going after the “filthy-rich”, it behooves us all to consider how they got their wealth and what they have done with it.

The plutocrats can have obtained their wealth in many forms ranging from highly licit and commendable ways that have even enriched many others, to odiously having used criminal means leaving many impoverished in their wake. But, once that wealth exists, what can the wealthy do with it?

They can invest their wealth in bonds and shares, which mean these assets, if well invested, will be productive.

They can freeze their purchasing power, by a sort of voluntary tax, on walls or in storage rooms, like for instance the $450 million Leonardo da Vinci “Salvator Mundi” (What those who got the $450 million fresh purchase power do with it, is what then becomes relevant to the economy) 

They can spend their wealth on things that no normal human being could spend on, which helps to create jobs than would otherwise not exist.

They can put some cash, on which they earn 0%, under the mattress... a couple of $100 bills?

They can engage in philanthropy, hopefully efficiently in worthy causes, otherwise that's a loss.

They can use their wealth to manipulate and exert undue influence.

That should primarily make us go after that wealth that has been obtained through illicit or immoral means; and that wealth that is used to manipulate and obtain more influence than what its owner should rightly have; and keep an eye out for useless and even bad philanthropy.

I argue all this because, when redistribution profiteers try to increase their franchise value by instigating envy and hate, it behooves the rest of us to make a clear distinction between the good and the bad among the astronomically wealthy; and to much better understand what has already been "redistributed" by the wealthy themselves, so as to avoid unexpected consequences.

What is absolutely certain though is that any redistribution of wealth will yield only a minuscule fraction of the benefits so loudly promised.

PS. There are though many market inefficiencies that allow wealth to be accumulated in legal and moral ways but that should anyhow be combated. This includes monopolies or excessive rent extraction from intellectual property rights.

Is freezing at Christies US$ 450 million in purchasing capacity in Leonardo Da Vinci’s Salvator Mundi something good or something bad?

Clearly Leonardo da Vinci has to personally, from above, be extending his deepest gratitude to Janet Yellen of the Federal Reserve and Mario Draghi of the European Central Bank. Had it not been for their quantitative easing (QEs) and ultra low interest rates, he would never ever have seen his Salvator Mundi valued, so soon, at an incredible US$ 450 million.

Of course the wealth redistribution profiteers will scream bloody murder. The US$ 450 millions is like a voluntary tax that has escaped their franchise. 

The real question though is: Was the freezing of US$ 450 million in purchasing capacity in a painting (or in a storage room), like with a sort of voluntary tax, something good, or something bad. If bad how do you reverse it without other negative unexpected consequences?

But, for the time being, what is much more interesting is what are the vendors to do with US$ 450 millions in cash?

I tweeted: How do you morph a $200 million Picasso hanging on a wall of a wealthy into real purchasing power for the poor?

Someone answered: "If owner says $200m & you think it's worth more, then you buy it for $200m, else you tax it 1/2%/yr"

I answered: "If you buy it for $200m then you used $200m you could have otherwise given the poor"

And I answered: "And if you tax it 1/2% year... how many will then want to own a $200m Picasso?"

Then someone answered (I think): “You mortgage that painting and invest that money into some job generating venture”

And I answered: "That's perhaps a great idea, if I make a really good job-generating investment. But, what if the markets get nervous about too much art being mortgaged at banks? Then the price of art might come down, or interest rates for banks go up… and then we might sort of be getting back to square one."

And I thought, if you hit especially at art wealth, will that not affect the expectations of art being worth more? And if so, will not the price for the paintings of the current painters go down… and so painters have less chance to make it?

And so I am getting closer and closer to conclude: In essence, he who hangs a $200m Picasso painting on the wall, has paid a $200m wealth tax.

I am a bit at loss. I hate unfair wealth creation as much as anyone, but once that purchase power has been frozen on a wall, how do you convert it into food, education and health services? Do you know of some arguments that could shed light on this issue?

Or phrased even more confusing: He who has agreed to freeze $200m of his purchasing power, hanging a Picasso on a wall, and so therefore does not to compete with other's purchasing powers, has he not already paid a $200m wealth tax?

More than going after that painting, why do they not go after the one who sold that painting. He has now the purchase capacity power, that is unless he already used it to.

Do you have another idea on this? Then email me

“The wealth of 62 richest equals that of 3.6 billion poorest” That‘s a deviously false odiously divisive argument.

"Panama Papers" Don't let redistribution agitation profiteers raise your expectations.